Information/transaction costs make it necessary to decentralize some decision rights in organiza- tions and in the economy. Decentralization in turn requires organizations to solve the control problem that results when self-interested persons do not behave as perfect agents. Capitalist economies solve these control problems through the institution of alienable decision rights. But because organizations suppress the alienability of decision rights, they must devise substitute mechanisms that perform those functions. Three functions are critical: (1) allocating decision rights among agents in the organization, (2) measuring and evaluating performance, and (3) rewarding and punishing individuals for their performance. Responsibility budgeting and accounting systems are the most widespread mechanisms for performing these functions in business today.

Swiss municipalities are being stretched to their limits. In the years from 1995 to 1997, 32% of all Swiss municipalities closed with a deficit. In response to this situation, numerous reforms have been introduced since the start of the 1990s in order to improve the performance capability of the municipalities. Aside from intermunicipal cooperation, New Public Management (NPM) is the reform project that is currently being discussed most in the Swiss municipalities. Recent data shows that every fourth municipality has already taken first steps with NPM. Many kinds of activities are understood as being encompassed by NPM, even when not all aspects of NPM are implemented. Only one fifth of the municipalities that have introduced NPM are already working with key elements such as product definitions, performance agreements, and global budgets, which are necessary for an orien- tation toward output and outcome. In municipalities of less than 1,000 inhabitants NPM is still hardly an issue, while a number of towns with over 10,000 inhabitants are looking into NPM quite intensively. NPM programs are being developed primarily in municipalities that are part of German- speaking Switzerland. Municipalities that offer a wide range of services consider new steering models, such as NPM, far more frequently than those with a narrower range. The financial situation has little influence on whether NPM is introduced.

Participation and control are both necessary in a democracy. In the two main models of public management, control trumps participation. The traditional model, Managing for Process, relies on centralized authority over process and emphasizes rules and regulations. The newer model, Managing for Results, permits decentralized control over process but relies on centralized control of results. We propose a third model, Managing for Inclusion, which has the potential to balance participation and control. Our model permits decentralized control over both process and results and requires central- ized control over the implementation of participation. The tools of empowerment, teamwork, and continuous improvement take on new meanings in this model. We show how management tools such as training and rewarding can implement participation and control the process of inclusion.

Recently, at the cinema in Toronto, I was watching advertisements flashing on the screen before a movie began. One ad, just as jazzy and upbeat as those for Coke or Nike, told us about the Government of Canada’s initiatives to connect various groups of Canadians— students and schools, libraries, voluntary organizations, distant communities, and small business—to the Internet. When the ad finished with the Government of Canada wordmark ("Canada" with the maple leaf flag over the final "a") a member of the audience shouted, "Lies!" The rest of the audience sat in embarrassed silence, resenting this breach of Canadian decorum.

The New Public Management (NPM) is not only academic papers and debates, but also a set of influential policies being implemented around the world. Diverse recipes—privat­izing, devolving, decentralizing, and managing by performance—are nowadays clearly identified with so-called "managerial reform".

In developing countries, quite a few people in public offices and even in academia defend these ideas as though their effectiveness and appropriateness were beyond doubt. Governing elites, supported by influential international organizations including the World Bank and OECD, frequently insist on moving ahead on these reforms with all deliberate speed. Those who dare to urge caution are often dismissed as unprogressive—or worse. Nevertheless, developing countries should know about the dangers of premature adoption of NPM strategies (i.e. prescribing more autonomy for bureaucracies in countries where accountability systems are weak or absent).

The purpose of this article is to shed some light on the transfer of knowledge of international public sector reforms. Given the available stock of knowledge on public sector reforms in various countries the key issue is how organizational learning from international best-practice cases can be facilitated. The question under consideration is how to improve the methodology of best-practice research in such a way that decision-makers may make well-informed selections among best-practice case studies and know how to implement foreign best practice in their domestic political and administrative context.